Pages

Wednesday, February 16, 2011

* 12 Industrial Strength Dividend Stocks

This is the third installment in a multi-part series that looks at different sectors that have traditionally been very friendly to dividend investors. Each of these sectors have attributes that make the companies in them potentially desirable to long-term buy-and-hold dividend growth investors. Understanding these attributes will hopefully help us to select the very best companies for our income portfolios. Last week we looked at Financial Services Sector. This week we are looking at Industrial Materials...

Industrial Materials Attributes

The Industrial Materials Sector consists of companies that manufacture products or otherwise harvest a product, such as a mining company. The products are most often inputs or raw materials into another manufacturing process, such as steel producer. Many of these companies are often referred to as members of the "smokestack industry" and are classified as cyclical stocks - a stock that rises and falls in step with the economy.

Timing is important when buying an industrial stock. If you buy when business is booming you will likely pay too much, which means a very low yield. Most stocks in this sector are currently overpriced. The average yield on Industrial Sector stocks that I follow is only 1.7%. This includes only 3 stocks yielding in the 3% range., with all the others sub-3%. Several of these sub-3% companies were yielding in excess of 4% in 2008 when the world looked bleak for Industrial stocks.

Industrial Materials Companies

Below are several leading Industrial Materials companies that I follow. The companies selected have a dividend yield of 2.00%, or higher, and have raised their dividends for at least 15 years.

RPM International Inc. (RPM)
Yield: 3.5% | Growth:2.5 % | Years: 38
RPM International Inc. makes specialty coatings and products for the structural waterproofing and corrosion control markets, as well as products for the consumer, do-it-yourself, and hobby markets.

Nucor Corporation (NUE)
Yield: 3.0% | Growth: 0.8% | Years: 37
Nucor Corporation is the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.

Air Products And Chemicals Inc. (APD)
Yield: 2.2% | Growth: 2.1% | Years: 29
Air Products and Chemicals Inc. is a major producer of industrial gases and electronics and specialty chemicals and also has interests in environmental and energy-related businesses.

General Dynamics (GD)
Yield: 2.1% | Growth: 10.1% | Years: 19
General Dynamics is the world's fifth largest military contractor and also one of the world's biggest makers of corporate jets.

Conclusion

The Industrial Materials Sector is the largest sector in my database of dividend stocks. Of the 198 stocks that I track, it currently is represented by 34 stocks (17%). As noted above, this is not a sector I am in a position to buy often, but when the time is right, I plan on taking full advantage of the opportunity. Two of my largest annualized returns (IRR) come from industrial stocks: 3M (MMM) at 46.5% and Emerson Electric Co. (EMR) at 49.7%. I wouldn't buy them at their current valuation, but based on where they were when I purchased them, I am enjoying a healthy yield-on-cost.

Full Disclosure: Long NUE, ITW, MMM, EMR, GD, UTX. See a list of all my income holdings here.

Important Information

Material presented on Dividend Growth Stocks is for informational and entertainment purposes only and is the opinion of the author and should NOT be relied on or taken as investing advice. The information and content should not be construed as a recommendation to invest or trade in any type of security. Neither the information, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any security or investment of any kind. Before acting on anything you read on this site, you must do your own research and you must come to your own conclusion which you will ultimately be responsible for, including any loss you may incur. [More]